Michael Pascoe

Our restaurant and coffee habits are that of a thriving economy, not an anxious nation.

Despite the noise from the usual suspects, there’s no evidence that the consumer needs lower interest rates.

Consumers have been spending nicely enough since the election, but retailers are regaining pricing power, so discounts are fading.

Cafes, restaurants and takeaway food services sector. Source: ABS

These are just some of the stories within today’s December retail sales figures.

The main lesson from the Australian Bureau Statistics release is confirmation of the Reserve Bank’s Tuesday decision to drop the last hint of an easing bias on monetary policy. In plain English, that means it’s stopped hinting interest rates might go down.

Despite the noise from the usual suspects, there’s no evidence that the consumer needs lower interest rates. He and she are spending just fine, but spending where they choose to, rather than where some existing businesses would like them to be.

Source: ABS

Instead of nervously counting our pennies in the face of ‘cost of living’ headlines, what we’re doing is eating out much more and keeping baristas employed. The star sector within retail continues to be restaurants, cafes and fast food outlets, as the accompanying graph shows.

On the raw original number, we spent $3.523 billion eating out in December, 10 per cent more than in December, 2012. On the trend series, the growth was 8.2 per cent and the seasonally adjusted series scored 8.3 per cent growth.

On any of the measures, that’s strong growth in a highly discretionary area – not that most coffee drinkers consider their habit discretionary.

For overall retail sales, the ABS trend series, which smooths out more of the noise, shows steady growth of 0.6 per cent for each of the last four months of 2013.

That’s a long way short of boom time, but it’s a big improvement over the previous year.

The Abbott honeymoon was remarkably short in the opinion polls, but it seems to have lasted in spending patterns – along with the impact of strong fiscal and monetary stimulus.

Department stores – the smallest and least important of the six ABS retail categories – continue to go nowhere.

While department stores recorded a 0.4 per cent rise in December from November in trend terms, they not only shrank as a share of totally retailing but went backwards in absolute terms. On all measures, department stores sales were below their 2012 takings.

The potentially tricky part of the figures is what is happening with pricing.

December quarter volume turnover was 0.6 per cent, matching the trend dollar sales growth, but the implicit price deflator was up a stiff 1.1 per cent for the quarter.

At the bottom of a cycle, signs of businesses regaining some pricing power can be a good thing, an indication of the strength of consumer demand.

Beyond that point, it’s something that the central bank starts to watch closely for signs of rising inflation.

Today’s retail sales figures won’t be a surprise to the RBA with its constant “industry liaison”, so there’s comfort in Tuesday’s RBA board meeting making clear that the bank is confident about inflation remaining within its target range for the next couple of years – as far as any eye can hope to see.

Along with today’s strong trade numbers, the retail sales performance adds to the likelihood of an upgrading of the official forecasts for our economy.